Thai economic growth is expected to cool to 3.7% in 2019 from a 4% forecast for 2018, while the general election could be a threat in the short run as foreign investors hold off on plans as they await the outcome, says a senior economist at CIMB Thai Bank (CIMBT).
Although the election, expected to take place on Feb 24, would be a positive factor for the economy in the long term, unlocking investment from developed countries, the short term would carry uncertainty in the event that a minority government is formed, said Amonthep Chawla, head of research.
Under the new constitution, any political parties that win 125 seats in parliament can form a government if they are backed by the 250-seat senators, but the minority government would struggle to push major laws and win censure debates, Mr Amonthep said.
"Regardless of the election's result and uncertainties, I still believe Thai economic diversity will help the country ride through difficulty, making a 'Teflon economy'," he said. "Despite political risks, the economy will not be stalled. There could be a brief slowdown before eventual recovery."
Thailand will inevitably avoid reforms after the election, and questions remain as to how each political party will undertake "Prayutnomics", which focuses on fiscal, industrial and state agencies and social reforms, he said.
"In summary, although our economic growth forecast in 2019 did not take into account long-term reforms, it is unavoidable that economists and foreign investors will raise questions about Thailand's growth potential, as the current growth rate of 3.5-4% is not sufficient for the country to escape the middle-income trap," Mr Amonthep said.
Moreover, as the population ages and the proportion of workers falls, savings for retirement are not sufficient, labour skills need to be sharpened, small and medium-sized enterprises (SMEs) and grassroots remain vulnerable, and income disparity lingers.
"Although the government has made strides in economic reform, they remain unfinished and hopes are pinned on the next government to move forward with long-term reform, rather than short-term stimulus policies that are not sustainable," Mr Amonthep said.
He said US-China trade tensions are another challenge for the Thai economy next year.
The 90-day trade truce between the world's two biggest economies does not mean that the tension will end, he said, and the rift might spread to non-tariff barriers, including intellectual property and currency manipulations to raise exports.
Exports, which were the mainstay of economic growth in the first half of 2018, have lost steam since the third quarter, he said, adding that CIMBT forecasts that the country's merchandise shipments will expand 3-4% next year.
On the policy interest rate, Mr Amonthep predicted that the Monetary Policy Committee (MPC) would lift the rate twice over the next 12 months to 2% at the end of 2019.
When the first rate hike will be made depends on what the rate-setting committee's concerns are, he said.
If the rate setters are worried about a slowdown in growth, the policy rate is expected to be raised in March after the final quarter's economic reading is released in February, but the rate will be raised in December if financial stability is prioritised, he said.
The MPC is set to meet on Dec 19.